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Withholding tax and biased behavior of Government

withholding tax and biased behavior of Governemnt

Withholding tax is a check on black money’s movement; but doctors, lawyers, and consultants don’t pay a rupee. What is being done to determine their income?

In Pakistan, an arguably perverse view of the American proclamation has been in vogue for some time now; “No taxation with representation”, which means that rich Pakistanis, including a significant percentage of members of the National Assembly and provincial legislatures pay next to nothing in tax, forcing the government to rely on foreign assistance to prop up finances.

Pakistan’s heavy dependence on foreign assistance impacts national sovereignty and has led to a ballooning debt-to-GDP ratio. Quite clearly, Pakistan’s tax-to-GDP ratio needs to increase so that the burden of financing the deficit doesn’t lie on borrowing from foreign countries or foreign multilateral lending organizations.

To counter tax-to-GDP ratio, Government of Pakistan imposed withholding tax of 0.6 percent in 2015 on banking transactions, that is deduction/collection of tax at source, which has generally been in the nature of an advance tax payment. It is an effective mechanism and timely source of revenue. However, the government later halved the rate to 0.3 percent till 30 September, 2015.

But business community along with most of the trade unions across the country has strongly opposed the withholding tax. Business community urges government to withdraw the tax because the officials don’t have authentic data to differentiate between the filers and non-filers of income tax returns. Business community criticizes the imposition of withholding tax describing it unfair as it would hike up inflation by increasing the operation costs of business communities.

However, economists say that taxes are a way for the government to pool some amount of important resources from the private sector to the public one, and deduction of withholding tax by a bank at the time of payment will help to document the transactions, thus checking free movement of black money but they have some serious concerns with the leakages, which exist in the taxation system that would have to be plugged for any substantial change. Economists say that doctors, lawyers, and consultants don’t pay a rupee. What is being done to determine their income?

As a Logical Pakistani, we appreciate Government’s efforts to collect tax returns, but the concerns of business community also need to be addressed. Also, we expect that business community and other citizens of Pakistan to be responsible with their tax returns for a prosperous Pakistan.

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